Housing sales have bounced in the last couple of months, but there's uncertainty about what the bounce actually means. Sales of houses were up nearly 10% in April compared to April of last year.
The crazy thing? Right now, even with insanely low interest rates, the bump is being mostly caused by a jump in cash purchases, according to Fortune:
"What's noteworthy is that almost all of April's 4.62 million sales were driven by cash buyers and investors looking to turn properties into rentals, which suggests the recovery can continue even if mortgage lending remains tight, according to Capital Economics."
The problem is that the government can't magically make housing prices go up in the middle of a bear market -- they can only slow down how fast the prices fall, dragging the impacts of the market out while creating malinvestment bubbles and costing other parts of the economy an incredible amount of wealth.
Partly related, we're also experiencing a heavy liquidity trap, where negative expectations are fueling the likelihood of a negative future, an almost textbook example of reflexivity in the real estate market.
That's not all -- housing prices are also seeing an impact from more foreclosures than last year, as I wrote about last month.
Add this to the fact that plenty of people just graduating college aren't able to find jobs, much less make a mortgage down payment, and you have a recipe that leads to, well, our current housing situation.
What this means is that unless one of the above things changes, then things will likely just stay the same or only increase very, very gradually. We'll know more about the next 10-15 years for housing after another year -- we'll be able to see if we're in the middle of any sort of recovery, or if the fundamentals are actually getting worse.
I've been looking at housing deals myself over the last few months, but have decided to wait -- at least for now. There's more money to be made playing it safe than there is to be played jumping into a market too early.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
